Foreign matter clogs the works

Posted On Friday, 24 February 2006 02:00 Published by eProp Commercial Property News
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JSE-listed construction firm Group Five continues to be dogged by contract problems outside SA, forcing it to stop work worth millions of rand.

Mike LomasCEO Mike Lomas says the company has recently terminated a roads contract in Malawi, after the client failed to pay up, and decided to pull out of India altogether.

"However, all known losses have been accounted for in prior periods," says Lomas, without giving further details.

In Malawi, the country's roads authority was going to use funds from either the International Monetary Fund or the World Bank to pay , but these funds were not forthcoming in time.

Before this incident, Group Five believed Malawi was a market with scope similar to other countries in the region such as Mozambique, Uganda and Zambia. In East Africa the company has an order book worth R654m for 2006.

Group Five has also pulled out of India, one of the three fastest-growing emerging market economies in the world. It has been operating in India since the late 1990s, mainly in toll road operations and maintenance contracts. It also held an equity interest in a toll road concession.

Group CFO Paul O'Flaherty - though reluctant to reveal the value of the projects the company was involved in - says it is unlikely at this stage that the company will return to India.

"The India National Roads Authority failed to pay us for work; we had no alternative but to leave. Besides that , differences in business culture made it difficult to manage the operation from SA," says O'Flaherty.

He says a civil claim against the authority is continuing, forcing him to fly to India every month . The company should be out of India by the end of this year, he adds.

O'Flaherty believes that while there are undoubtedly lucrative contracts to be had in India, the money they would have lost by remaining there would have more than offset the opportunities.

It is not the first time Group Five, like other construction companies, has had its fingers badly burnt in projects outside SA.

But of the interim R3,1bn revenue for the six months to end-December, which was up by 35% year on year, revenues from outside SA totalled R1,1bn, a far more pronounced 64% rise. This in line with the company's strategy of expanding its non-SA order book.

Reflecting the improved business conditions, headline earnings per share were up 35,8% to 69,4c/share. The dividend was lifted by 17,6% to 20c/ share.

Lomas says this is a sixth consecutive period of interim earnings improvements and strong cash generation. "We are well positioned to take advantage of infrastructural spending in SA ."

The group's construction order book stood at a record R5,3bn for the year to end-June 2006 and at R4,4bn to December this year.

Last modified on Thursday, 08 May 2014 13:14

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